Redundancy consultation: charity got it wrong

The closure of children’s charity Keeping Kids Company (formerly Kids Company) was controversial and well publicised. It hit the headlines following serious allegations of safeguarding failures, financial mismanagement and a lack oversight from the government which had given the charity significant sums of money. The Employment Appeal Tribunal (EAT) has now upheld a ruling that the charity breached redundancy consultation requirements when it closed, because it failed to start redundancy consultation in good time. This means ex-employees will be in line for compensation.

Legal background

The Trade Union and Labour Relations (Consolidation) Act 1992 requires employers to consult collectively (i.e. with employee representatives such as trade union officials) whenever they are proposing large scale redundancies (i.e. affecting over 20 employees). Such consultation must begin “in good time”, be meaningful and consider ways of avoiding or mitigating the dismissals.

The obligation to consult collectively arises once the employer is “proposing” to dismiss staff as redundant. This means more than just thinking about doing it but, must start, where possible, before the plans are set in stone.

A failure of this obligation allows claims against the employer in the employment tribunal (ET) for 90 days’ gross pay per affected employee (protective awards). An employer may argue in its defence that there were “special circumstances” which meant it was not possible for it to start consultation in good time before the staff were dismissed as redundant. However, ETs are not generally sympathetic to this argument. Even if there are special circumstances, employers must still do whatever they can reasonably do to consult with the workforce.

The facts

After Keeping Kids Company got into financial trouble, it applied to the government for emergency funding and was offered a grant in July 2015. The charity’s application for funding included plans to cut 100 employees. The funding was withdrawn in August 2015 after it was revealed the charity was under police investigation for a number of issues. The charity closed two days after the government funding was withdrawn, and all employees were dismissed.

More than 100 employees brought a claim in the ET, on the basis that they had not been consulted about the redundancy. In its defence, the charity claimed that the sudden withdrawal of funding meant consultation wasn’t possible, and that this constituted special circumstances.

The ET found in favour of the claimants, saying that the charity should have begun consultation as soon as it applied for the government grant, and it awarded the employees 90 days’ pay. The charity then appealed to the EAT.

The EAT’s ruling

In Keeping Kids Company v Smith and others, the EAT dismissed the appeal, agreeing with the ET’s decision that consultation obligations began when the charity applied for government funding. The EAT agreed that the charity should have started consultation “promptly” after the funding application as, even with this cash some restructuring was going to be necessary. The EAT also agreed that the special circumstances defence did not apply.

The crucial fact in this case was that the charity’s application for government funding included plans to cut 100 employees, which constituted a clear intention of redundancy. That is why the ET and EAT both found that consultation had not started in good time.

What does this mean for employers?

Even if redundancy plans are provisional and details are not firmed up, it is vital employers initiate prompt consultation with employees. Details may emerge or change over the course of the consultation process but the important point is to start the dialogue as soon as possible. Employer are usually reluctant to reveal their plans as they fear damaging morale but, it is clear that the employment tribunals will take a dim view of this. Given that the 90 day protective award can add up to very substantial sums when large numbers of employees are involved, it is certainly better to start talking sooner rather than later.